PEKING — The Reagan Administration is preparing to notify Congress soon of its intention to carry out its largest military sale yet to China, according to Western diplomats here.

The United States is planning to sell the Chinese air force advanced avionics--that is, radar, navigation and fire-direction equipment--for China's F-8 interceptor planes.

The size of the sale is uncertain because it will not be put out for bids until after congressional authorization is obtained, but it is estimated that the total amount will be several hundred million dollars.

The impending deal was first disclosed earlier this month by a Washington correspondent for the Far Eastern Economic Review. Western diplomats here confirmed the report and said they expect that the Administration will formally notify Congress of the deal within the next few weeks, perhaps even before Feb. 1.

No Pentagon Comment

Officials at the U.S. Embassy in Peking declined to comment on the sale, saying that all information about it would have to be released in Washington. Pentagon officials in Washington also declined to comment.

The avionics deal would be only the second government-to-government arms sale between the United States and China. The first, sent to Congress last September, was a relatively non-controversial $98-million sale of equipment and a design for China to build a factory for artillery and other ammunition.

Under federal law, the executive branch is required to notify Congress of any major foreign arms sale. The sale is then official unless Congress objects within 30 days. Congress did not object to the first arms sale to China last fall.

Analysts here said the avionics deal could be worth anywhere from $200 million to $1 billion to American defense contractors, depending in part on how many planes China decides to upgrade.

The sale of avionics has been under consideration for several years, dating back at least to the 1983 visit to Peking by Secretary of Defense Caspar W. Weinberger.

It could provoke strong opposition from Taiwan and from Taiwan's supporters in Congress, who have sought to prevent a deepening of the military relationship between the United States and China. Taiwan's representative in the United States, Fredrick Chien, recently returned to Taipei for consultations, and Sen. Barry Goldwater (R-Ariz.), chairman of the Senate Armed Services Committee and one of Taiwan's most important congressional allies, recently visited Taiwan.

Defensive Use Claimed

According to Western diplomats here, the United States will argue that the Chinese interceptors with U.S. avionics would be used primarily for defense of China's northern border with the Soviet Union and that the planes do not present any new offensive military threat to Taiwan.

Last year, China took several steps to improve its relations with the Soviet Union. But over the last few weeks, Chinese officials have taken a much tougher public stance, demanding Soviet concessions on issues such as Cambodia, Afghanistan and the Soviet military presence along China's borders.

Some Western analysts here have interpreted the recent cooling of China's relations with the Soviet Union in part as an attempt to placate the United States and other Western nations that can provide China with the advanced technology it needs.

James A. Kelly, U.S. deputy assistant secretary of defense, arrived in Peking this week for talks with Chinese defense officials, and diplomatic sources said the discussions might include final details of the impending avionics sale. Kelly could not be reached for comment.

Taiwan Seeking F-20s

For several years, Taiwan has been trying to persuade the United States to sell it a squadron of F-20s, advanced all-weather fighter planes. The Reagan Administration has rejected these requests on grounds that Taiwan does not need the planes for defensive purposes.

Under a communique with China negotiated by the Reagan Administration in August, 1982, the United States agreed not to increase arms sales to Taiwan and eventually to reduce the amount of these sales. Over the last few years, the United States has been supplying Taiwan with more than $700 million a year in military equipment.

Taiwan now has more than 200 F-5 fighters supplied by the United States or made in Taiwan under co-production agreements with the United States.

Last year, Taiwan defense officials notified the nation's legislature that Taiwan plans to produce its own new advanced jet fighters beginning in the 1990s. One source here said he thought Taiwan might hope to receive U.S. help in this effort.